Money Matters

8 simple ways to avoid Christmas cash flow woes

Christmas is an important time of year for firms all over the UK, whether you need to gear up for your busiest period or batten down the hatches for a quiet period in trading.

Either way, it’s likely that the festive season presents some alternative challenges (in addition to the likes of the impact of coronavirus) to the rest of the year, so you’ll need to plan carefully to make sure you don’t get caught out.

Here are eight tips that could help you avoid any Christmas cash flow woes.

1. Forecast your cash flow

You may already have a process in place for cash flow forecasting per quarter or even per month. If so, this will stand you in good stead. But many firms don’t forecast cash flow, or they do so erratically.

At a less predictable time of year, it’s worth understanding a few different scenarios to see what happens in the best and worst case. That way, if you end up needing to go to Plan B, you’ll already have an idea of the figures involved.

2. Prepare for your tax bill

Many firms will pay corporation tax in January, which can be a big hit to your cash flow if the coffers are already depleted.

Tackling this problem early could make a big difference in the new year, whether that means putting some extra cash aside or perhaps thinking about external funding.

There are some business loans on the market specifically designed to finance a tax or VAT bill, which might be a good option for your firm if you’re scraping the barrel by January.

3. Plan for employee absences

Whether it’s planned annual leave, winter illness or just Christmas party hangovers (yes, this can still happen if you throw a virtual party), you’ll probably find that your staff absences increase at this time of year.

And bear in mind that whatever your firm is experiencing, others may be too – which could mean the normally reliable person on the other end of the phone isn’t available as much as you expect for the rest of the year.

It’s a good idea to factor this into your financial planning, which might mean adding a couple of days’ buffer to your delivery deadlines, ordering stock early, or even hiring temporary staff if Christmas leads to particularly high demand in your sector.

Whatever happens, you can guarantee that Christmas and the new year are some of the most volatile times of year for your workforce. So make sure it doesn’t have a knock-on effect on your cash flow.

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4. Stay on top of your invoicing

Any business that deals with purchase orders and invoices should be paying extra attention at this time of year.

Many companies will be disrupted over Christmas, which means the chances of a missed payment, delayed invoice, or misplaced order are higher. And this is doubly important if your own business’s cash flow is more fragile than normal.

Keep the lines of communication open with your customers and suppliers to make sure everything is going smoothly because a bump in the supply chain can have a nasty effect over Christmas.

And if everything is going well after all, you can use the phone call as an opportunity to wish your loyal business associates a Merry Christmas!

5. Don’t forget about irregular payments

From an HR point of view, Christmas presents some unique challenges. You may choose to pay for a virtual staff party and many firms will also run payroll early.

Combine those with late payments and a quiet period in trading, and you could end up with some cash flow problems on your hands.

Keep these things at the front of your mind. Not only are they some of the biggest Christmas cash flow challenges but they also have a big impact on staff morale at a time of year when you may rely on your staff the most.

6. Keep your books clean

You’ve probably noticed that the common theme at Christmas is disruption, which means it’s easy to spend your time fighting fires and end up neglecting the mundane but important administrative tasks.

But there are two reasons to make sure the paperwork is getting the proper care and attention.

The first is that if your books are shipshape and Bristol fashion, any irregularities should be easier to spot – and at a tricky time of year, it’s easier to prevent a problem than to solve one.

Second, if you do decide to explore business finance to help with your Christmas cash flow, having the paperwork ready will make the process significantly quicker and easier.

7. Check your loan options

For some of these issues, you might decide to get a business loan or other form of finance. But even if you’re not sure, it pays to do some preliminary research. That way, you can move quickly when a clear need for funding arises.

There are lots of different products on the market that could help you cover a seasonal cash flow requirement but there are a few rules of thumb that apply to most of them.

Even something as simple as having bank statements and directors’ details ready can mean your loan application goes from days to hours, so being prepared can make all the difference if you decide to go ahead.

8. Don’t forget to enjoy Christmas

In the whirlwind of running a company, burnout is a real issue – but it can sometimes be difficult to see the signs in yourself. It might not have a direct impact on cash flow but it’s incredibly important to look after yourself and take the time you need to relax and recharge, even just for a couple of days.

If you’re calm and well rested, you’ll be better equipped to deal with any Christmas cash flow woes that come up, which will mean a happier festive season for you, your staff and your customers.

Editor’s note: This article was first published in December 2017 and has been updated for relevance.

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